New state tax credit encourages veteran farmers to lease land, equipment to newcomers

By Charlie Howard

For the Camera

Eric Skokan, Ruben Ramirez and Juan Collazo Galarza prepare a field for planting along Jay Road in Boulder on Monday morning. (Devi Chung / For The Camera)

What you need to know about House Bill 16-1194

Aging farmers

Colorado average age of farmers:

1997: 53.3

2002: 54.5

2007: 57

2012: 58.9

US average age of farmers:

1997: 54

2002: 55.3

2007: 57.1

2012: 58.3

Young Colorado farmers who lack resources got a boost from Colorado lawmakers this year under a new measure that gives tax breaks to older farmers who help them.

House Bill 16-1194, which takes effect in 2017, was signed into law June 8.

The bill's sponsor, State Rep. Diane Mitsch Bush, D-Steamboat Springs, said the bill is designed to encourage young people to enter the field, taking the place of older farmers who are nearing retirement age.

Colorado farmers are aging at a faster rate than their counterparts nationwide. Across the U.S. in 1997, for instance, the average age stood at 54, while Colorado farmer age was 53.3 By 2012, the national average stood at 58.3, while Colorado's average age had risen to 58.9, according to the United States Department of Agriculture's 2012 Census of Agriculture. The next census is due out in 2017.

Boulder Valley growers are seeing the impact of the trend every day.

"This bill really captures the essence of the struggle going on in the farming community today. We have a lot of older farmers who are over capitalized and looking to retire and a lot of younger farmers under capitalized with no land," said Eric Skokan, co-owner of Boulder County's Black Cat Farm.

While the tax credit is an important step, experts said more will be needed to ensure veteran farmers connect with the next generation.

Norman Dalsted, an agricultural economist with Colorado State University's extension service said that because of lower commodity prices, the tax deduction might not be enough of a break to get established farmers to lease their land to beginning farmers.

What it does: Provides an income tax deduction for established farmers who lease out their agricultural assets to beginning farmers.

Who qualifies as a beginning farmer: A Colorado resident whose net worth is under $2 million. Must have less than 10 years of farming experience and must plan to farm full time and provide the majority of the daily labor.

Who qualifies as an established farmer: Any Colorado taxpayer who owns agricultural assets

When it takes affect: January 2017.

Why it was drafted: To encourage young people to enter agriculture by removing some of the most costly obstacles, such as the purchase of land and equipment.

"A number of commodities like corn and livestock have taken such a hit in recent years that this incentive might not be enough to get a farmer who has to net a yield to gamble on a beginning farmer," Dalsted said.

Dalsted also said that for an established farmer simply passing the land on to the next person is no easy task.

"The hard part is getting a person to give up their way life. If you have spent your entire life dedicating all of your time, blood, sweat and tears into to a piece of land, the person you pass the reigns has to be someone you have a deep relationship with," Dalsted said.

Adrian Card, extension agent with Colorado State University in Boulder County, said he looks at the challenges of a beginning farmer like he would look at the challenges of a small business start up

"Not everyone is cut out to be an entrepreneur and not everyone is cut out to be a farmer," Card said.

Card is a coordinator for Colorado Building Farmers, a farming education program designed to help beginning farmers learn the business of farming.

The program, nearly 10 years old, has had failure rates as high as 75 percent, Card said.

The reason beginning farmers often have so much trouble in their initial years, Card said, is because they have to invest heavily for years before generating income.

"Beginning farmers will sometimes have a mismatch between the business goals and resources available. The cost of running a farm requires farmers to shoot for a higher yield then is sometimes possible for a farm in its early years," Card said.

Under the law, new farmers must be Colorado residents with a net worth of less than $2 million and with less than 10 years of experience. Those interested in participating must have some farm experience or education and they must commit to farming full time.

The beginning farmer must then attend a financial educational program and be approved by the Colorado Agricultural Development Authority.

New farmers will be able to lease agricultural assets from any Colorado taxpayer who owns agricultural assets. The bill defines agricultural assets as land, crops, livestock, facilities, equipment and machinery, grain storage or irrigation equipment.

Established farmers will be certified by the Colorado Agricultural Development Authority, and will be entitled to an income tax deduction equal to 20 percent of the annual lease payment received from new farmers for a minimum of 3 years.

An established farmer can possess more than one deduction certificate and can receive up to $25,000 in income tax deductions a year. Only 100 certificates will be available each year.

Jill Skokan, co-owner of Black Cat Farm, said that one of the largest hurdles of getting into farming is obtaining land.

"Land is in high demand these days and anything that opens up availability to farm land is a good thing," Skokan said.

Brian Coppom, executive director for the Boulder County Farmers Market said that certain agricultural assets aren't suitable for sharing.

"You may not want to lease your tractor or your seeding machine because often times farmers need these pieces of equipment at the same time depending on the time of the year," Coppom said.

Marc Arnusch, owner of the 26,000-acre Arnusch Farms LLC in Weld County said that the equipment will not be a limiting factor to the success of the bill because it is the inability of young farmers to obtain land that keeps them from entering the business.

"Down the road I would love to take advantage of this kind of legislation. I could see myself leasing 400 to 500 acres to my son or relative at some point in time in the future to get young people involved."

Eric Skokan, of Black Cat Farm and Bistro examines his combine on Monday morning which he purchased from a farmer nearing retirement. (Devi Chung / For The Camera)